As always, you provide some great answers and info. Thanks.
Now, on Fox biz this evening they had a gentleman from some conservative bank that had avoided exotic lending practices. He mentioned that in some gub’ment bill the FHA would relax DTI to 55%. And I actually may have misunderstood….he may have been talking about just the mortgage (doubtful). Either way, he mentioned what many here have. this is the wrong thing to do and punishes the vast majority who have stayed within their means.

You missed some info for that dynamic mortgage map.

I’d like to see the first stat of how many loans per 1000 were subprime or Alt-A.

Removing the moral side of the question, let’s assume this plan goes through and 10% of Americans have their principal balance “adjusted” downward so the house becomes more affordable and they can “stay in it”. Let’s assume they get an average of a 20% adjustment, the amount prices have dropped in the last year according to Case-Shiller.

Well, what do you suppose the reaction is going to be from the pension funds / hedge funds / Foreign Sovereign Wealth funds, etc. that funded all these mortgages? I seriously doubt that they will be real thrilled to find out that when their 500 million dollar investment matures they are only getting back 80 cents on the dollar.

This action would essentially make mortgage bonds and related securities the riskiest of risky, and investors would either a) never touch them again, decreasing funds available to write mortgages or b) if they did play again they would demand much higher interest rates, lower LTVs, better coumentation of income, all of which would tighten lending standards even further.

So, by the gov’t saving the stupid/greedy few, the whole rest of the country will be faced with higher interest rates on mortgages, much tighter lending standards and an absolute decrease in the total funds available for mortgages.

And what do you suppose all of that will do to the price of housing? That’s right, drive it even lower.

The easiest way to picture this is to imagine that mortgages were illegal and all houses had to be paid for with cash that the purchaser saved themsleves; what do you suppose the median home price would be? Sure as hell not 408K like it is here in SoCal.

So, the whole point here is that this plan, which is wrong to begin with, will have the effect of tightening credit even further, depressing home prices even farther and faster, and in 18 months all these dummies we bailed out will be right back where they started today: owing more on their house than what it is worth.

Why is this so hard for the rest of the world to understand and why do people seem to not care?